BNPL schemes like Klarna, Clearpay, Pay in 3 and so on have become go-to options at checkouts. It's easy, feels better and ‘you don’t have to worry about your budget in case you want to return the item'… so I've heard.
It's a ‘promising' way to spread costs without interest but what feels harmless can quickly become a slippery slope. Here's what you ought to watch out for:
It's debt, just dressed differently: Even without the interest, you're still borrowing money. To credit agencies, you're accumulating more credit and if you utilise the offering often, you can be perceived as reliant. It's not the profile you want especially if you intend to seek out new credit i.e. a car finance, mortgage or personal loan.
Not FCA-regulated (yet): Most BNPL lenders aren't fully under the same rules as banks and financial providers, which ultimately means less protection for you. The FCA recognise that this isn't entirely safe and discussions regarding their intervention are underway. If the FCA thinks BNPL needs more scrutiny… it's worth paying attention.
It skews your money mindset: People use BNPL for many reasons but the bottom line is, you've decided to rely on funds that you don't have. BNPL normalises the idea of owing money in the interim , even for every day items like clothes or skincare…to which you have to ask yourself, ‘Should this be my normal spending behaviour?'
Somewhere along the way, you might have whispered ‘but it’s just like a credit card' and I see why you think that, but it's just not. To keep it brief, whilst both are forms of borrowing…
1. Credit cards generally offer Consumer Protection
2. Credit cards are reported to credit agencies meaning consistent and responsible use actually builds your credit profile. Most BNPL services can't improve your credit but can harm it if used irresponsibly
Like all forms of credit, this doesn't deem BNPL the devil, but it's a tool best used with clear intention or not at all. If you are reliant on BNPL, it's probably time to look deeper into your spending habits or budgeting system.
As always, not financial advice but if you read this and felt somewhat triggered or guilty then maybe it's worth considering breaking up with BNPL.
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